2013 Newsletter

FROM THE DESK OF LIC. JOSE JUAN SANCHEZ CHAVARRIA “2013 NEWS LETTER”: a business intelligence report:

To the Clients and Associates of the Law Firm CR Law Ltda., following up with the 2012 news letter here is the 2013 version, covering statutory acts, real estate market conditions and law firm news.

1. Statutory acts: 2012 was a year with some statutory legislation passed by the CR Parliament, relevant to the private international and investment sectors:

1.1 OECD: In accordance with the Laura Chinchilla administration policy of open borders and multilateralism in order to access sovereign funds, Costa Rica became the 1st Central American country to sign the Convention on Mutual Administrative Assistance in Tax Matters:

1.2 Law N° 9024: Corporate Persons Tax Law: entered into force APRIL 1st 2012 (yes fools ‘day) this Law taxes all national and foreign juridical entities such as corporations (SAs), LLCs (Ltdas) and FLPs (family limited partnerships), the Law classifies the entities as “active” tax payer and “non - active” taxpayer depending on how the entity appears in the CR Revenue Administration taxpayer index (D-140 form). The tax is 25% of judicial-clerk minimum salary for non-active and 50% for active entities. Also entities incorporating for the first time shall pay the 50% sum of the salary prorated by 360 days of the year, so it is cheaper to incorporate in DECEMBER and more expensive to incorporate in JANUARY. Also entities in arrears are frozen in the Public Registry and on the third year of arrears will be de-registered by the Registry Mercantile and become eligible for liquidation of assets pursuant to 209 of the Code of Commerce. This date should be FEBRUARY 2014.

1.3 Immigration By Laws: On 17 MAY 2012 was published in the official newspaper La Gaceta (www.gaceta.go.cr): Minister of Governance and Police Decree N°37112 – GOB: By Laws and Regulations to the Law General of Immigration and Foreigners´ Affairs (Law N°8764), it is an extensive document with 356 articles and over 215 pages, which regulates and establishes procedures. Note: art. 90 regulates the Investor Status: owner of a usd200,000 real estate investment, and art. 99 regulates the self income Rentista Status with a CD lowered to usd60,000 to remain in the bank for two years, instead of the usd150,000 for five years originally.

1.4 Note: The Hague Apostille Convention of 1961 is in full effect since DEC 2011:

1.5 Laws N°9068 and 9069: Law for the Enforcement of Fiscal Transparency and Law for Strengthening Tax Enforcement: These two laws result in my opinion from the failure of the Chinchilla Administration, for the 4th time in a row of administrations, to enact a Comprehensive Revenue Tax Code (with notions similar to the Internal Revenue Code), after the bill draft became repealed under Constitutional Court challenge actions. So they designed these laws to “tighten the screws” so to speak. They both overhaul the CR Tax Revenue Norms and Proceedings Code, so tax accountants must be very busy catching up with its changes, which include digital format of the accounting data bases of tax payers, and migration from paper tax returns to digital ones. So if you are an active tax payer you should discuss with your tax accountant these laws; I wont discuss it as it goes outside the scope of this paper.

1.5.1 Code of Commerce: These two Laws made some transcendental changes to the CR Code of Commerce amongst which:

a. art. 615: Bank Secrecy Law weakened: the article was redrafted to read that bank accounts are inviolable by the banks, however an EXCEPTION regime is made pursuant to request by the regulator SUGEF (CR securities exchange commission) or “authorization granted” to the CR Revenue Administration thereto.

c. Companies´ Books: the accounting books became electronic and no need to legalize them with CR Revenue. The Shareholders Meetings, Registry and Board of Directors books, also became electronic or paper, as you wish, but must be legalized either: i. by the legal representative or Shareholders ´Proxy before the Mercantile Registry. Ii. By the legal representative on the digital platform: www.crearempresa.go.cr, but you ll need a digital signature to do it.

d. Shares and Shareholders´ Registry Book: bearer shares became eliminated totally from the 986 articles of the Code of Commerce, shares must be nominative ie with the Beneficiary´s name, and the doctrine of art. 140 becomes strengthened: Shareholders´ Registry Book registration.

1.5.2 Real Estate Property Transfer Tax Law N°6999: the Laws under comment also reformed arts. 2, 3, 4, 7, 10 and 12 of the Real Estate Transfer Tax Law, whereby tools are introduced in order to tax the transfer of corporations´ shares, as a means to convey real estate property and avoiding the transfer tax. Also the new property owners are under the obligation to declare to the Municipality the fair market value of the property. The Public Registry has to issue Regulations to these laws in respect to the enforcement or regulations that the laws mandate upon the Public Registry. Observers are wondering how the change of directors of the statute of entities which own real estate, is going to be regulated, as there is no presumption a transaction has occured result of the change of directors. Some commentators wonder if companies´ mergers between a shelf company and a holding company, as a transaction vehicle to convey the land, will remain untaxed. Also the property transfer tax is to be levied over the fair market value of the property.

1.6 Law N°9036: Transformation of the IDA into the INDER: This is a government agency in charge of running a rural parcel land expropriation and award program since 1948, property transfer transactions are levied .2% Agrarian Tax Stamp, so totaling 2.7% on property transfer transactions at the Public Registry, from previous 2.5%.

2. Real Estate: Enough of taxes, and the good news is that the market is perceived to be sustaining the momentum it gained in JANUARY result of the new years´ resolutions: I will buy the property this year, I will pay off the mortgage this year etc … so let us hope 2012 was definitely the rock bottom year we all are waiting to verify. That said local banks still need to get rid of some repossessed portfolios like Costa Montana in Jacó Beach, and other not so toxic assets. Nonetheless we have also observed previously stagnated properties finally being sold at cash prices. So the dynamic is there for you to seize the opportunity.

3. Law Firm: Please note that we have moved to AVENIDA PASTOR DIAZ, ie Jaco´s main avenue, building adjacent East side of the Municipality, former INS offices, ground floor. Feel free to contact us for a tax statement, corporate survivorship, estate planning or transactions.

God bless you all and look forward to seeing you in the sunny Jacó Beach,